Supplemental Security Income

Purpose: This Ruling defines a loan for SSI purposes. It also
explains when the proceeds of a loan count as resources under the SSI
program, when they do not count as income, and how SSA treats a loan
agreement when the lender is an SSI applicant or recipient. Social
Security Ruling (SSR) 78-26 previously addressed these issues.

In addition, this Ruling reinterprets SSI regulations to permit treating,
as the basis for a loan, food or shelter that an SSI applicant or
recipient receives from someone in whose household he or she lives and has
an obligation to pay for at a future date.

Background: The Social Security Act, at section 1612(a)(2)(A),
provides that unearned income includes in-kind support and maintenance.
Regulations, at 20 CFR 416.1121(h), define in-kind support and maintenance
as food, clothing, and shelter furnished to an SSI applicant or recipient.
Regulations, at 20 CFR 416.1103(f), provide that the proceeds of a loan
are not income.

In 1978, the Social Security Administration (SSA) published SSR 78-26,
setting forth its policy regarding the treatment of loans under the SSI
program. SSR 78-26 gave the following information:

When an individual borrows and receives money through a lending process,
as a borrower, or receives money as repayment on an outstanding loan
(lender), a determination must be made whether such money is considered a
resource or income for SSI eligibility and payment purposes. Since
inception of the SSI program, proceeds of a loan have not been considered
income to the borrower because of the obligation to repay. Existing
regulations do not spell this out. Similarly, since inception of the SSI
program, outstanding loans made by an SSI applicant or recipient from
money available to him/her have been considered a countable resource to
the extent there has been a negotiable instrument showing existence of a
loan agreement. This is because a negotiable instrument is convertible to
cash and, therefore, meets the definition of a resource for SSI purposes.
In such a case, the negotiable instrument would be a countable resource to
the lender.

Existence of a negotiable instrument, however, is not the sole criterion
of a bona fide loan. The interpretation of a bona fide loan for SSI
purposes is that where a borrower receives money (from relatives, friends
or others) a loan is created if there is an understanding between the
parties that the money borrowed is to be repaid and it is recognized as an
enforceable contract under State law. The transaction which creates a loan
can be in the form of a written or oral agreement if enforceable under
State law. Absent a negotiable instrument, a bona fide loan must still be
convertible to cash in order to be considered a resource for SSI
purposes.

Under this policy interpretation, a householder's advance of food or
shelter to a household member could not be treated as a loan because it
did not involve an actual advance of cash.

In 1986, in Hickman v. Bowen (803 F.2d 1377), the Fifth Circuit
Court of Appeals ruled that there was no jurisdiction for treating cash
and in-kind income differently under 20 CFR 416.1103(f). Since both are
income, both could be the subject of a loan. The court concluded that food
or shelter provided by a householder to a household member is a loan if
the household member is obligated to repay the debt.

In 1988, SSA issued Acquiescence Ruling (AR) 88-7(5) to implement the
Hickman decision for individuals residing in the States in the
Fifth Circuit (Louisiana, Mississippi, and Texas). AR 88-7(5) instructed
that when an SSI claimant or recipient alleges receiving in-kind support
and maintenance, that in-kind support and maintenance will be considered a
loan and its value will not be considered for the purpose of calculating
SSI benefits, but only if the applicant or recipient can demonstrate that
the in-kind support and maintenance receive was, in fact, loaned to him or
her in realistic anticipation of repayment, that he or she intends to
repay the debt, and that under the terms of SSR 78-26 a bona fide loan
agreement has been made.

In 1991, in Cequerra v. Secretary of Health and Human
Services (933 F.2d 735), the Ninth Circuit Court of Appeals issued an
opinion which adopted the rationale of the Fifth Circuit Court of Appeals
in Hickman. Absent a change in national policy, SSA acquiescence
policy would thus require the issuance of another acquiescence ruling
similar to AR 88-7(5) for individual residing in the Ninth Circuit
(Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada,
Northern Mariana Islands, Oregon, and Washington).

In view of these recent court decisions, SSA has decided to reinterpret
its regulations on the treatment in the SSI program of advances of food
and shelter to an SSI or recipient by an individual in whose household he
or she is residing.

Policy Interpretation: For purposes of determining when a loan is
not considered income and when a loan is considered a countable resource
under the SSI program, the following policies apply:

1. A loan means an advance from lender to borrower that the borrower must
repay, with or without interest. A loan can be cash or an in-kind advance
in lieu of cash. For example, an advance of food or shelter can represent
a loan of the pro rata share of household operating expenses. This applies
to any commercial or noncommercial loan (between relatives, friends or
others) that is recognized as enforceable under State law. The loan
agreement may be oral or written, as long as it is enforceable under State
law.

2. Any advance an SSI applicant or recipient receives that meets the
above definition of a loan is not income for SSI purposes since it is
subject to repayment. Any portion of borrowed funds that the borrower does
not spend is a countable resource to the borrower if retained into the
month following the month of receipt.

3. When money or an in-kind advance in lieu of cash is given and accepted
based on any understanding other than that it is to be repaid by the
receiver, there is no loan involved for SSI purposes. It could be a gift,
support payments, in-kind support and maintenance, etc., and must be
treated as provided for in the rules applicable to such terms.

4. If there is a bona fide loan as defined in (1) above, there is a
rebuttable presumption that the loan agreement is a resource of the lender
for SSI purposes.

For example, an SSI applicant or recipient reports making a loan to a
relative. The loan agreement is oral. The oral agreement is found to be
binding under State law. Accordingly, the loan is presumed to be a
resource of the lender because it can be converted to cash if the lender
calls for repayment from the borrower. The lender can rebut this
presumption by showing that the loan cannot be converted to cash -- for
example, because the borrower died without leaving an estate.

5. Money a lender receives as repayment of a loan (which meets the
definition of a resource) reduces the outstanding loan balance and is
considered a countable resource to the lender inasmuch as the repayment
amount represents a return of part of the loan principal; i.e., the total
value of the resource, which is the repayment amount plus the outstanding
loan balance, remains unchanged.

6. Interest on a loan is counted as unearned income to the lender in the
month of receipt and, if retained, is a resource as in (2) above.

Documentation: Evidence must be obtained with respect to the
existence of a bona fide loan agreement. The burden of proof with respect
to the bona fide nature of the loan is with the applicant or recipient.

Effective Date: The effective date of this Ruling is the date of
its publication in the Federal Register. Determinations made before
that date regarding advances of food or shelter may be reopened and
revised subject to the rules of administrative finality at 20 CFR
416.1488(a).

The AR for the Hickman decision (AR 88-7(5)), is being rescinded
through a separate publication in the Federal Register. However,
anyone to whom the Hickman AR would have applied, had it remained
in effect, may request application of the policy contained in this Ruling
to determinations made by SSA between the date of the Fifth Circuit Court
of Appeals decision (November 10, 1986) and the date this Ruling is
published in the Federal Register if he or she first demonstrates
that application of this Ruling could change the prior determination or
decision. In addition, anyone to whom a Cequerra AR would have
applied, had one been issued, may request application of this Ruling to
determinations made by SSA between the date of the Ninth Circuit Court of
Appeals decision (May 15, 1991) and the date this ruling is published in
the Federal Register if he or she first demonstrates that
application of this Ruling could change the prior determination or
decision.